presentation title speaker name date journalist breakfast briefing roger jones, co-head of...

Presentation TitleSpeaker NameDate

Journalist Breakfast Briefing

Roger Jones, Co-Head of CommoditiesKevin Norrish, Director, Commodities Research Bharath Manium, Director, Commodities Investor Solutions

Monday 10 March 2008

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Roger Jones, Co-Head of Commodities

- Welcome

Click to edit Master title styleOur commodities business operates globally across a broad range of asset classes

Industrial Materials

• Base Metals

• Precious Metals

• Plastics

Other Speciality Markets

• Forest Products

• Weather

• Environmental products

• Agricultural products

• Softs

• Freight

Energy

• Crude Oil

• Refined Products

• European Power & Gas

• US Power & Gas

• Coal

Investor Products

• Swaps

• Commodity Bonds

• Funds

Click to edit Master title styleIntroductions

• Kevin Norrish, Director, Commodities Research

- Commodity market investment outlook

- Results of conference audience survey

- Comparison with 2007 results

• Bharath Manium, Director, Commodities Investor Solutions

- Latest evolution in investor products


Kevin Norrish, Director, Commodities Research

- Commodity market investment outlook

- Survey findings

Click to edit Master title styleIn the wake of the credit crisis, commodity investments have outperformed

Annualised returns of major indices from August 2007

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

28%

32%

S&P GSCI DJ-AIG JPM Govt Bond JPM EM Bond S&P 500 GPR 250 Property

Click to edit Master title styleDemand for commodity investments continues to gather pace

0

40

80

120

160

200

1997 1999 2001 2003 2005 2007

Issuance of commodity mediumterm notes

US commodity index-linked mutualfunds

Exchange traded commodityproducts

Barcap estimates of commodityIndex AUM attributable to pensionfunds and other institutions

Launch of new commodity investor products has soared in early 2008

Commodity market investments hit $178bn in 2007

0

20

40

60

80

100

120

140

Feb-04 Feb-05 Feb-06 Feb-07 Feb-08

Total numbers of newly launchedcommodity-linked medium termnotes and exchange traded products


Key fundamental drivers

Click to edit Master title styleDepletion of the resource base

45

55

65

75

85

95

105

115

Dec-01 Jun-03 Dec-04 Jun-06 Dec-07

USANorwayUKMexico

Oil production indexed at November 2001

Steep decline in mature non-OPEC oil output continues

25

30

35

40

1980 1985 1990 1995 2000 2005

Reserve life of Cu reserves at committed & probable projects (yrs of production at current rates)

Copper reserves relative to demand are very low

Click to edit Master title styleCosts escalation is rampant

0

20

40

60

80

100

120

140

2001 2003 2006 2007 2008 2010 2011

Millenium Albian

Aurora 2 & UE1 OPTI-Long

Lake

Horizon

Muskeg & Scotford UTS/Fort

Hills

Recent and projected capital costs for Canadian oil sands projects ($'000/bbl per day)

Costs of aluminium smelters are more than double the previous decade

Oil project capital costs rising as fast as prices- tar sands capital costs +300% since 2001 Average capital cost of aluminium smelters

(Excluding China), nominal $/t

2000

3000

4000

5000

6000

7000

8000

1980s 1990s 2000s Qatalum

Current estimate for a 2009 project in Qatar

Click to edit Master title styleCommodity market trends are increasingly interlinked

Rising energy prices

Higher gold prices

Higher grain prices

Higher industrial metals prices

Higher livestock prices

Climate change/carbon costs

Resource scarcity

Rising Asian living standards & industrialisation

Inflation concerns &

weaker dollar

Boost demand for biofuels & raise

production costs

Inflation concerns

Higher food prices raise labour costs

Higher food prices

raise labour costs

Higher animal feed costs

Inflation concerns

Producer policy

Click to edit Master title styleIt’s not too late!

The prices of many commodities have set new records in nominal terms in recent months. But relative to inflation-adjusted benchmarks, price rises look more modest. Many commodities are still trading a long way below their 1970/80s “real” price highs.

10

100

1000

10000

Feb 71 May 80 Aug 89 Nov 98 Feb 08

Oil Wheat Gold Copper

Relative price performance - logarithmic scale

(inflation adjusted, indexed to 100 in 1970)Feb '08 37-year real Distance from Average price peak When real price peak

Heating oil (c/gl) 265 265 Feb '08 0%US Crude Oil ($bbl) 95 95 Feb '08 0%Platinum ($/oz) 1995 2070 Feb '80 4%

Copper ($/t) 7886 9066 Mar '74 13%Lead ($/t) 3078 3734 Oct '07 18%Gold ($/oz) 924 1561 Jan '80 41%Nickel ($/t) 27941 52699 May 07 47%Wheat (c/bushel) 1059 2172 Feb '74 51%Aluminium ($/t) 2776 5749 May '88 52%Tin ($/t) 17190 40628 Feb '80 58%Corn (c/bushel) 516 1291 Oct '74 60%Palladium ($/oz) 466 1238 Jan '01 62%Soybean (cents/bushel)1383 4205 Jun '73 67%Zinc ($/t) 2437 9241 Apr '74 74%Cotton (c/lb) 72 336 Sep '73 79%Silver (c/oz) 1763 8930 Jan '80 80%Sugar (c/lb) 13 191 Nov '74 93%

highs since 1970 (monthly average prices, 2007 US$)Comparison of current commodity price levels with inflation-adjusted

Click to edit Master title styleCarbon: New opportunities for Investors

Analysis of the relative economics of different emissions-cutting measures is still in its infancy and cost curves like that shown below come in many different shapes and sizes. But one way or another the incorporation of carbon emission costs will be an important factor impacting future energy costs and prices.


Barcelona Annual Conference Survey Results


In turbulent financial conditions, investors are raising their

commodities exposure…


53%

11%

30%

6%

? Portfolio diversification

, Inflation hedge

ƒ Absolute performance

„ Other

What do you think is the most attractive aspect of investing in commodities?

2007 55%

8%

33%

4%

2006 48%

15%

33%

4%

Today

Question 1


35%

34%

9%

22%

? Zero

, 1-5%

ƒ 5-10%

„ Over 10%

In 2006/2007, what percentage of your portfolio was in commodities?

2007 33%

37%

11%

19%

2006 50%

31%

7%

12%

Today

Question 2


4%

33%

29%

34%

? Zero

, 1-5%

ƒ 5-10%

„ Over 10%

Over the next 3 years, what percentage of your portfolio will be in commodities?

2007 6%

35%

37%

22%

Today

2006 7%

38%

19%

36%

Question 3


Investors view commodities as long-term exposures…


5%

28%

19%

48%

? 0 - 6 months

, 6 - 18 months

ƒ 18 months - 3 years

„ 3 years or longer

How long, typically, would you expect tohold your commodity exposure?

2007 9%

20%

29%

42%

Today

2006 12%

21%

40%

28%

Question 4


65%

20%

10%

5%

? High price levels

, Capacity/liquidity

ƒ Transparency

„ Absence of roll yield

What is currently your greatest concernwith investing in commodities?

2007 43%

21%

23%

13%

2006 54%

17%

15%

13%

Today

Question 5


48%

42%

10%

0%

? $100+

, $80-100

ƒ $60-80

„ Less than $60

What do you think the average price ofoil will be over the next five years?

Question 6

Today 54%

27%

16%

2%

New York ConferenceResults December 2007


Investor strategy…


12%

24%

21%

43%

? Passive long only index

, Mixture of passive and active management

ƒ Total active management

„ Structured commodity products

How are you currently investing in commodities?

2006 16%

20%

16%

49%

Today

2007

18%

25%

13%

45%

Question 7


5%

35%

29%

31%

? Passive long only index

, Mixture of passive and active management

ƒ Total active management

„ Structured commodity products

Over the next 3 years, how do you expectto be investing in commodities?

2007 3%

21%

27%

50%

2006 11%

28%

15%

46%

Today

Question 8


Which markets do investors favour…?


12%

13%

6%

53%

16%

? Energy

, Precious metals

ƒ Industrial metals

„ Agriculture

… Livestock

Which commodity sector do you expectwill give the highest returns in 2008?

Today


18%

19%

8%

45%

10%

Question 9


41%

20%

36%

3%

? Alternative energy equities

, Direct agriculture/biofuel exposures

ƒ Carbon emissions trading (EUTS/CERs)

„ No portfolio adjustments required

What, in your opinion is the best way of getting exposure to the climate change theme?

Question 10

Today 33%

16%

40%

12%



Bharath Manium, Director, Commodities Investor Solutions

- Product innovations

Click to edit Master title styleProduct Innovations

• New asset underlyings- Carbon- Coal and Freight- Agriculturals

• New payoff structures

• The quest for alpha- CORALS- Everest Alpha


Questions & Answers

presentation title speaker name date journalist breakfast briefing roger jones, co-head of...

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